ML-Implode News - Rickards: The China bubble is bursting

China is on the verge of a financial collapse of unprecedented magnitude... The only investments available to most Chinese other than low-rate bank deposits are gold, real estate and so-called "wealth management products." These wealth management products are offered by banks but are not guaranteed by them. Investor assets are pooled into the products and then invested in commercial projects with the proceeds shared among the investors. The banks promise high returns on these products, which resemble the notorious collateralized debt obligations popular in the U.S. before the Panic of 2008.
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Eventually some event such as a project failure or admitted fraud will start a panic in which investors demand that the banks redeem their wealth management products all at once. The banks will be unable to do so and will suspend redemptions on the products... Since China represents about 10% of global GDP, any problems in China will not stop there but will ripple around the world in dangerous ways. This could hit the U.S. in 2015, just as the U.S. debt and deficit problems begin to negatively impact our own economy. A continuation of the depression that began in 2007 is likely and a new more dangerous stage of the depression is possible.

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Rickards: The China bubble is bursting